How Oracle Plans to Improve Its Top Line Performance

Tech giant Oracle (NYSE: ORCL  ) , which just beat expectations by increasing its quarterly revenue 2% to $9.3 billion, is well-known for offering best-in-class solutions in the software world. From hardware to cloud solutions, Oracle is present in practically every segment of the tech world, where it takes advantage of its expertise in database technology to cross-sell a wide variety of solutions to Fortune 500 companies.

However, as competition from cloud players such as Salesforce.com (NYSE: CRM  ) and Workday (NYSE: WDAY  ) increases, Oracle could find it very challenging to continue growing its top line. Revenue between 2012 and 2013 barely increased.To boost sales, a reorganization of the U.S. sales force may be on its way, according to JMP Securities analyst Pat Walravens. Will this change be enough for Oracle to improve top line? More important, what other choices does Oracle have in order to return to a high-growth path?

Source: Oracle Investor Relations, Annual shareholder meeting

Reorganization?
To improve the company's top line, Oracle's president Mark Hurd, who joined the firm three years ago, may have been overhauling the sales force for more than two years, according to Business Insider.

Note that there are plenty of stories about some of Oracle's most successful salespeople quitting because they disliked the new atmosphere, which according to one salesperson interviewed by Business Insider, included some controversial measures, such as limiting the sales territory to less than 20 square miles of a metropolitan area. In the past twelve months, 17-year veteran Tony Fernicola, Oracle's former head of North American sales Keith Block, and 17-year veteran Dave Rey, all left Oracle to join Salesforce.com.

What Oracle really needs
The company, which has a thousands-strong sales force, may not be in urgent need of a reorganization. Rapid sales growth for key products, such as Exadata --a new database machine engineered to be the highest performing platform for running Oracle databases-- shows the company's execution power remains strong. And Oracle just had its first recent beat-the-street quarter this week, after three whiffs in a row.

What investors need to remember is that Oracle is still facing a business-model transition. As Morningstar analyst Rick Summer notes, the company is still trying to adapt its products to a new subscription model. Moreover, there are plenty of customers who still rely on Oracle's legacy solutions to operate, and need to migrate to cloud solutions. The company needs to manage this transition successfully.

Managing the transition
The current strategy involves extending support of legacy applications, and at the same time help customers with the transition from legacy to cloud solutions. This should help the company to retain traditional customers that are not interested in cloud solutions, such as banks and international organizations, and at the same time recapture market share from Salesforce.com and Workday, which are particularly popular among mid-size enterprises.

Recapturing share market from cloud players
The market for cloud solutions is growing at an amazing speed. Only the infrastructure as a service segment is expected to reach over $24 billion in revenue by 2016.

In the cloud-based software segment, Salesforce.com -- the largest provider of customer relationship management software based on the public cloud -- has managed to capture significant market share from Oracle, by focusing on customers looking to cut IT costs. Due to its cloud focus, as much as 94% of Salesforce.com's total revenue comes from subscriptions, and therefore it is recurrent.

Workday, on the other hand, just generated almost $130 million in revenue for the third quarter -- up 76% on the year before -- by focusing on providing affordable, global cloud-based applications for human capital and financial management. The company recently announced a deeper relationship with Salesforce.com, involving the integration of Workday's human customer management and other applications to Salesforce Sales, Service and Marketing clouds.  

To recapture market share, Oracle has designed a strategy that addresses every segment of the cloud market. For example, in terms of software as a service, the company's main advantage is that, unlike Salesforce.com, all of its applications are built on the Oracle Database, a state-of-the-art secure database platform.

On the infrastructure front, the company plans to be price competitive against Amazon.com and Microsoft Azure, and at the same time focus on differentiation, which should improve margins in the long run. The company already has a competitive pay-as-you-go monthly pricing model in motion, and has successfully developed some star products, like the Oracle SuperCluster T5-8, a system designed for database and enterprise applications based on the world's fastest database server, and the world's fastest processor, delivering a 10x better price/performance than a comparable IBM solution.

Final Foolish takeaway
Oracle does not need a sales force reorganization process. The company's execution power remains strong, as evidenced by the latest quarter results. 

Investors should remember the company is still facing a business transition process. Oracle needs to provide traditional customers with enough legacy support, and at the same time sell its cloud solutions to more price-sensitive clients. In this context, the company's current business focus and cloud strategy appear to be on the right track.

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